MiFID II Best Execution: Compliance Task or Business Opportunity?
When MiFID II is implemented on the 3rd of January 2018, it will mark the end of one chapter (the initial scramble for compliance), but the beginning of another. There are several areas where the new rules will trigger structural changes that may take a while to bed down. Best execution is one of those areas.
The heightened levels of disclosure falling under RTS 28 requires investment firms to publish their top five destinations for order flow, which may raise question marks for any firm whose flow is not being directed to the most competitive venues. RTS 28 also requires investment firms including managers to explain how they have used “data or tools relating to the quality of execution, including any data published under RTS 27”. It seems clear that investment managers should be working out how to integrate the newly available data into their best execution arrangements.
In turn, RTS 27 will prompt execution venues (including exchanges, MTFs, OTFs, systematic internalisers and market makers) to publish much more data relating to the quality of their trade executions. This data should, in theory, make it easier to assess which venues offer better quality execution for specific asset classes.
This heightened level of transparency is therefore unlikely to be just a compliance burden. It has the potential to stoke competitive forces that could change the landscape and dynamics of the market.
Read our latest article to find out more about the impact that MiFID II best execution requirements are likely to have, and the steps firms need to take not only to meet immediate compliance obligations but also to prepare for longer term strategic implications.